A taxing question: Is Stamp Duty Land Tax suffocating the English housing market? - London School of ...
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A taxing question:
Is Stampfrom
Lessons Duty Land Tax suffocating
the English
the stamp duty holiday
housing market?
Report
An LSEfor Building Society November 2017
Familyreport
London
July 2021
for Family Building Society
Kath Scanlon, Christine Whitehead and Fanny Blanc
Kath Scanlon, Christine Whitehead and Fanny Blanc
Acknowledgements
This report was commissioned by Family Building Society.
We are very grateful to those who responded to our survey, attended our focus group, or agreed to be interviewed.
To enable research participants to express their views frankly we have not named individual contributors. Much of this
document was informed by our interviews and discussions, but the final report is the work of the research team and may
not reflect the views of all participants.
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a Creative Commons licence. This document/publication is also available on our website at lse.ac.uk/geography-and-
environment/research/lse-london/LSE-London or lselondonhousing.org
Any enquiries regarding this document/publication should be sent to us at:
LSE London
Any enquiries regarding this document/publication should be sent to us at:
London
LSE London School of Economics
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Political Economics
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LSE LondonContents
Foreword................................................................................................................................................. 1
Executive summary ................................................................................................................................. 2
1 Introduction ......................................................................................................................................... 4
The stamp duty holiday ...................................................................................................................... 4
Arguments for and against stamp duty .............................................................................................. 5
The research questions ....................................................................................................................... 5
2 The research approach ........................................................................................................................ 6
3 The numbers: transactions and revenues............................................................................................ 7
Stamp duty receipts ............................................................................................................................ 8
The impact on house prices ................................................................................................................ 9
4 Some direct and indirect effects of stamp duty: evidence from existing research ........................... 10
The direct effect on residential mobility........................................................................................... 10
The indirect effect on expenditure associated with home moves ................................................... 11
5 Effects on the market and consumer behaviour: survey findings ..................................................... 13
Consumer views: How the holiday affected behaviour .................................................................... 13
About the respondents ................................................................................................................. 13
About purchasing a property during the stamp duty holiday ...................................................... 13
Reasons for moving....................................................................................................................... 15
Characteristics of the new property ............................................................................................. 16
Views on the future of stamp duty ............................................................................................... 17
Intermediaries’ views: How the holiday affected the market .......................................................... 17
6 Conclusions ........................................................................................................................................ 19
What happened? .............................................................................................................................. 19
Why did activity increase? ................................................................................................................ 19
The impact of the holiday ................................................................................................................. 19
The case against stamp duty ............................................................................................................. 20
The 3 questions answered ................................................................................................................ 21
To what extent does moving house generate additional economic activity? .............................. 21
Has the tax holiday been worthwhile for the economy (despite possibly increasing house
prices)? .......................................................................................................................................... 21
Is there a case for maintaining the nil rate at £500,000 or other more radical reforms? ............ 21
References ............................................................................................................................................ 22
Annex A: Maps of survey respondents ................................................................................................. 24
Annex B: Summary of customer and intermediary interviews ............................................................ 26Foreword
One Government holiday that’s worked!?
The vaccination program has been a great success.
What else?
Large numbers of people have taken advantage of the Stamp Duty holiday since it was introduced in
July 2020. It has been a great success. It has generated desperately needed jobs and economic
activity. It’s started tapering off. Maybe the Chancellor would be better to keep it going?
Stamp duty is an easy tax to avoid. You just don’t move. People move much less nowadays than they
used to. Stamp duty receipts have not turned out to be at levels that George Osborne hoped for
when he introduced the rates that we went into the pandemic with. There is a real emotional issue
for many in writing out a big cheque to the Inland Revenue out of what is already post-tax income.
You may want to move because you need more space, or less, or want to be somewhere else, nearer
work or family. Moving helps to optimise the housing stock – you don’t have empty nesters in larger
family homes or people unnecessarily commuting long distances. And when you move you generate
a lot of economic activity. People spend money on the moving process and movers are improvers.
They spend money on their new home--perhaps 5% of the cost of the home in the first year.
As this report says, that adds up to anywhere between £1.8- £2.7bn being injected into the economy
– probably more by the time you add the multiplier effect.
The stamp duty holiday has been a very elegantly crafted experiment
• In the first quarter of 2021 there were 50% more transactions than in the first quarter of
2020, ie before the pandemic struck.
• The £500,000 ceiling covers up to 90% of purchases. At that level, it saved people £15,000.
Above that level you still pay high rates. Second homeowners still pay an extra 3%. So do
buy-to-let investors.
• The holiday supports the Government’s levelling up agenda, given that house prices are
higher in London and the South East.
• Increased transactions mean better use of the housing stock.
• And, best of all for the Government, the economic multiplier of pre- and post-sale purchases
and the extra transactions mean that it’s probably quids in anyway! And it is richer people
who are paying it all.
Releasing this demand does push up house prices. But the way to deal with this is not to suppress
demand by taxing it but to improve the supply side – just build more houses.
“We need people feeling confident – confident to buy, sell, renovate, move and improve. That will
drive growth. That will create jobs.” Who said that? Rishi Sunak, the Chancellor.
The experiment has worked. Don’t stop now.
Mark Bogard
CEO
Family Building Society
1Executive summary
The stamp duty holiday
The stamp duty holiday announced last July raised the threshold for tax payment to £500,000 until
end-March 2021. It was then extended to the end of June, followed by a £250,000 threshold until
end-September. The most existing homeowners could save was £15,000, reduced to £2,500 from 1
July 2021. First-time buyers gained at most £4,000 because they already had a higher threshold.
The government had two main objectives for the holiday: to stimulate the housing market and to
increase expenditure on goods and services related to housing transactions. Indeed, it was Rishi
Sunak’s expressed aim that the policy would help create and sustain jobs.
Our objectives and methodology
The research addressed three issues:
i. To what extent does moving house generate additional economic activity?
ii. Has the holiday been worthwhile for the economy (despite possibly increasing house prices)?
iii. Is there a case for maintaining the nil rate at £500,000 or other more radical reforms?
Our methodology had three strands: a review of academic evidence on the impact of stamp duty
and the empirical evidence on its effects; analysis of data on the numbers of transactions and the tax
take since last July as compared to 2019; and two surveys, one of Family Building Society customers
who had taken out mortgages between August 2020 and March 2021 and one of intermediaries.
Findings
Literature: The academic literature presents a near-universal consensus that stamp duty is a bad tax.
There are three main reasons: first, it reduces mobility which means that the housing stock is
inefficiently used: in particular, it reduces the incentive to older households to downsize which
leaves younger family households with restricted choices. Secondly, it reduces productivity as
people have less incentive to move house to take on a better job. Third, fewer moves mean
commensurately lower consumption related to moving, which impacts negatively on economic
activity. The literature is also clear that removal of existing stamp duty would increase house prices
because it would reduce the overall cost of moving.
The empirical evidence on holidays is relatively limited. Two studies of the stamp duty holiday put in
place at the time of the global financial crisis found that transactions and house prices both
increased, as did consumption, but that the effects were short term and activity declined after the
end of the holiday. Other research suggests that extending the holiday in perpetuity might generate
a net increase in government revenues because of greater economic activity and higher house
prices, but the estimation range was very large and included the possibility of significant revenue
reductions.
Statistics: The statistical evidence shows that the housing market had begun to pick up in May 2020,
well before the stamp duty holiday was introduced--probably because of the backlog arising from
the first lockdown. The impact of the holiday could be seen from September 2020. Transactions
increased by about 10,000 per month as compared to 2019 until February and March 2021, when
transactions were 50% and then 100% above the levels of early 2020. As a result, by March 2021, the
number of transactions in the financial year 2020/2021 were comparable to those in 2019/20.
Since March, transactions have been variable but are still probably positively affected by the holiday.
The impact on government revenue was initially very negative, but by March 2021 stamp duty
revenues were back to the levels seen the previous year. This was for two reasons: the increase in
2transactions near the end of the initial holiday and the rapid increase in house prices. These rose by
over 10% in the year to March 2021 – far more than in the previous year, which had seen increases
of 3%. The rate of house-price change varied considerably across regions, with the highest rises in
areas where the benefit from the stamp duty holiday was least.
Survey evidence: Evidence from the survey of Family Building Society customers indicated that
stamp duty was only one element in why people had chosen to move. Most important were family
reasons and wanting a larger home or a different location. Intermediaries, on the other hand, said
the holiday had generated a frenzy of activity both among buyers and sellers, almost all of whom
wanted to complete before the stamp duty holiday ended.
The surveys suggested that there were three main reasons for moving:
• The easing of lockdown, which had delayed many purchases and moves,
• Changing property requirements--significantly because of the pandemic--with people
wanting to move away from cities and purchase more space, including access to outside
space both private and public, and
• The stamp duty holiday, which both made it easier to move and changed people’s attitudes
to moving. Its role as a catalyst mattered more than the amount of money people saved.
Many buyers paid more in higher prices than they saved on stamp duty.
Importantly, average induced expenditure of £16,000 (moving expenses + spend on the new home)
per transaction across 140,000 transactions (our rough estimate of the additional transactions
generated) would generate total induced expenditure in the order of £2.2 billion—or within the
range of £1.8 to £2.7 billion, given the very large uncertainties around these figures. There would
also be a multiplier effect on general expenditure by those who receive the payments.
Conclusions
Our research with Family customers and intermediaries makes clear that many people find stamp
duty an unacceptable form of taxation and that it distorts decisions, particularly about moving.
Economists consistently argue that stamp duty is a poor tax that reduces residential and job mobility
and contributes to inefficient use of the housing stock. It has negative impacts on employment and
productivity because it makes people unable or unwilling to adjust their housing.
There is a strong case for a more fundamental assessment of property taxes to reduce economic
distortions arising from the impact of disincentives to move on the housing market, productivity and
economic growth.
There is also a case for extending the holiday in its initial form, as some of the impact on house
prices has already occurred, so future more fundamental reform would be less costly.
Answering the 3 questions:
• Yes, economic activity increased;
• Yes, the holiday has helped the economy but also increased house prices; and
• Yes, having started there is a case for continuing the holiday, as it would help reduce
distortions in the housing and labour markets. The case would be stronger if more
fundamental tax reform were envisaged.
31 Introduction
This is the third in a series of LSE London reports for the Family Building Society on the effects of
Stamp Duty Land Tax (henceforth stamp duty) on the UK housing market. The two earlier reports
examined the impact of stamp duty on the housing market (Scanlon et al, 2017) and monitored how
this was changing (Whitehead et al, 2018).1
The stamp duty holiday
In July 2020 the Chancellor introduced a stamp duty holiday aimed at stimulating economic activity
by boosting transactions in the housing market so as to offset the expected effects of the
coronavirus pandemic on transactions. Initially, this was to last until the end of March 2021 but was
later extended to the end of June 2021, with a lower threshold until the end of September and
reversion to the normal thresholds on 1 October 2021.
This holiday was expected to mean that some 90% of those buying would be exempt from stamp
duty for the period up to the end of June 2021 – although increases in house prices have brought
some additional homes into the tax.
The form the stamp duty holiday took was straightforward. The first £500,000 of any purchase
would be exempt from stamp duty tax but above that amount, rates would be as normal – ie 5% on
the amount between £500,000 and £950,000; 10% on the amount to £1.5 million; and 12%
thereafter.
The result of the initial phase of the holiday (until 30 June) was that those buying a home for half a
million pounds or more would save £15,000. Purchasers of buy-to-let properties and second homes
would save the same amount, although they would not be completely exempt as they were still
liable for the additional 3% paid by those not purchasing a principal residence. Importantly, first-
time buyers would save less, as they had already been exempt from stamp duty up to £300,000 and
paid 2% on the next £200,000. Their maximum saving would therefore be £4,000.
As a proportion of house prices, the stamp duty saving would be 3% for most of those buying at
£500,000, declining as the price of the home increased. For first-time buyers the proportion would
be less than 1%. Importantly, especially perhaps for first-time buyers, all households affected would
gain cash flow.
The holiday is being phased out over three months. From 1 July 2021 to 30 September, the
exemption limit has been reduced to £250,000 so the maximum saving falls to only £2,500. On 1
October the holiday is due to end and the previous rate structure will apply.
The Treasury regarded the stamp duty holiday as an element of its Plan for Jobs (HM Treasury,
2020a). In a speech to the House of Commons in July 2020, the Chancellor said, ‘We need people
feeling confident - confident to buy, sell, renovate, move and improve. That will drive growth. That
will create jobs’ (HMT 2020b). The goal of the holiday was thus not just to support housing
transactions but also to incentivise consumption on move-related expenditures. In an October 2020
press release, the Treasury noted that the rise in sales was helping to support hundreds of
thousands of jobs through both the activities associated with moving and expenditure on
furnishings, decorating and appliances. HMT noted that ONS National Accounts data in 2019 showed
home-move-related expenditure accounted for 5% of consumption, and a survey had suggested that
1
Two other reports for Family Building Society have examined borrowing in later life (Scanlon et al,2018) and
the Bank of Mum and Dad (Scanlon et al, 2019).
4a third of all movers intended to spend what they saved in stamp duty on home improvements (HM
Treasury, 2020a).
Arguments for and against stamp duty
The main argument in favour of stamp duty is a revenue one: residential property is the single most
valuable asset owned by British households, and stamp duty is currently the major tax levied on that
value. It is also very easy to collect. It is also very easy to avoid, as households can simply refrain
from moving.
However, there is a strong economic case that stamp duty is a bad tax because it reduces the
incentive to move and therefore leads to a more inefficient use of the housing stock. Lower mobility
also means fewer people moving to better employment, which has a negative impact on
productivity.
There are also practical arguments for the removal of stamp duty altogether because of its
behavioural effects on market participants. In particular, older people who may wish to downsize or
move to more appropriate accommodation see it as a major disincentive to moving. In addition, it
increases the effective down-payment requirement because the tax payment cannot be covered by
the mortgage. Therefore, the tax hinders more efficient use of the housing stock and reduces
residential mobility and with it labour mobility.
Some commentators suggest that stamp duty actually damages employment, and that abolishing
the tax would actually increase government revenues overall. Increasing mobility would stimulate
demand for goods and services – and investment – related to moving. It would therefore generate
employment, increasing tax revenues and reducing unemployment costs. The removal of stamp duty
would also tend to increase house prices so those who pay capital gains tax on investment
properties or inheritance tax on the value of their homes would be paying more. Overall, they
argue, abolishing stamp duty on residential property would remove a major distortion from the
housing and employment markets and support the growth agenda.
The research questions
The objectives of this paper are to examine the evidence on how the stamp duty holiday operated to
date, to look at how consumers responded to the opportunity to move more cheaply, and to assess
the case for extending the holiday or abolishing the tax entirely. In this paper we explore what
happened to tax revenues and transactions during the stamp duty holiday, look at consumer
attitudes to the tax, and ask what might be the most appropriate way forward.
The three research questions are:
iv. To what extent does moving house generate additional economic activity?
v. Has the tax holiday been worthwhile for the economy (despite possibly increasing house
prices)?
vi. Is there a case for maintaining the nil rate at £500,000 or other more radical reforms?
52 The research approach
Our starting point was to examine the numbers, comparing trends before the pandemic with the
numbers since the initial lockdown, including the pattern of prices and the split between buyer
types.
To address the potential positive impacts of reducing the number of transactions affected by stamp
duty, we then undertook a review of the economic, financial and policy literature on stamp duty and
related taxes. This involved two elements: the impact of taxation on transactions; and the
relationship between transactions and expenditure on the process of moving, on repairs and
improvements to the home and on related purchases such as furniture.
We also carried out a survey of Family Building Society customers who had taken out mortgages
during the period from August 2020 to March 2021. We asked them about why they moved, the
impact of the holiday on their decisions, and how much they expected to spend on the moving
process and on their new home – as well as their views on the future of stamp duty. In addition, we
undertook a survey of intermediaries in the market who worked with Family and their views on the
level of activity, the impact of stamp duty and what should happen to the tax.
The main objective was to clarify the extent to which the reduction or removal of stamp duty might
increase the overall level of housing-market transactions in the longer term, and to identify and
estimate the potential economic benefits that might flow from that—both for individual households
and for the economy as a whole.
Finally, we came to some conclusions about the net effects of continuing the holiday in terms of
increased taxation from economic activity; other benefits; and direct tax loses.
This was thus a mixed-methods piece of research, bringing together the analytic framework with
both objective evidence and consumer understanding of the policy and its implications. The research
took place in five overlapping stages:
i. Reviewing and analysing the statistics on housing transactions and Stamp Duty revenues;
ii. Reviewing the literature on stamp duty and its effects on house prices, mobility and
employment, as well as on the relationship between moving and economic activity;
iii. Surveying Family Building Society customers who took out mortgages during the stamp duty
holiday, to explore the effects of the policy on their decision to buy;
iv. Surveying mortgage intermediaries to explore their views on the impact of stamp duty on
the market; and
v. Pulling the findings together into this report.
63 The numbers: transactions and revenues
To understand what has happened during the stamp duty holiday, we start by looking at trends in
property transactions since before the pandemic and particularly since the holiday was announced.
Figure 1 shows how transactions moved over the last two years. During 2019, property transactions
in England varied between around 66,000 and 93,000– but once the figures are seasonally adjusted
there was surprisingly little variation, suggesting an average of around 80,000 per month. The first
three months of 2020 were somewhat lower.
Figure 1: Monthly residential property transactions completed in England with value of £40,000 or
above: April 2019 – April 2021
165,000
145,000
125,000
105,000
85,000
65,000
45,000
25,000
Data source: HM Revenue & Customs
The immediate effect of the lockdown was to reduce transactions by about 60% in April 2020.
Thereafter they rose to 50% of 2019 levels in May; over 70% in June; and almost 80% in July.
The stamp duty holiday was announced on 8 July 2020 but could hardly have affected the July
transactions figures significantly. In August there was still little direct evidence of a stamp duty
holiday impact. However, by September the transaction rate was running at 2019 levels and in each
of the next two months transactions were running at around 10,000 above 2019 rates.
As originally designed, the scheme was due to end at the end of March 2021, and unsurprisingly the
highest levels of transactions were in December, February and March 2021: transaction levels were
almost 30% higher in December 2020 as compared to December 2019; 50% higher in February 2021
than in February 2020; and 100% higher in March 2021 than the same month in 2020.
Looking at the totals for 2019/20 and 2020/21, the high March 2021 figures pull the annual financial
year number up to just above a million transactions (of properties selling for £40,000 plus), as
compared to the pre-pandemic 2019/20 figure of just below one million. So, by April 2021 one could
argue that the system was back on track. The April 2021 provisional figures suggest that
transactions were still above 2019 rates, but the estimated figures for May 2021 are back to 2019
levels (there are of course no comparable figures for 2020). The April figures, at least, probably
include sales that would not have completed before the first deadline but did go through in the
7extended time. However, the time taken to complete sales--especially where there are chains
involved--suggests that June transactions will not reach the level attained in March.
The statistics show that transactions had started to rise well before the stamp duty holiday could
have had any impact, and that the year’s holiday at least helped the market to match pre-pandemic
transactions levels.
The key question is whether the time-limited nature of the stamp duty holiday stimulated higher
transaction levels in the short term only, or created a step change in activity that will continue as the
economy improves. Did the holiday act as a catalyst to make people think about moving for quite
other reasons, such as higher savings during lockdown or changing preferences for space inside and
outside the home? If so, the impact of the holiday will be seen in continued higher levels of
transactions long after the tax break ends.
Stamp duty receipts
The government’s goal for the holiday was to stimulate housing transactions and with them,
associated economic activity. It accepted that revenues would be significantly reduced at a time
when many other sources were also adversely affected.
Table 1 shows that net residential receipts tend to rise more than transactions because of house-
price increases. Receipts peaked in 2017/18 and then fell, as did transactions. In 2020/21
transactions stabilised but receipts fell by more than a quarter as a result of the stamp duty holiday.
Table 1: Net residential receipts and residential transactions from 2014/5 annually
Net residential tax receipts Residential transactions
% change from % change from
£million Number
Financial year previous year previous year
2014-15 7,499 1,206,500
2015-16 7,310 -3% 1,183,700 -2%
2016-17 8,590 18% 1,093,700 -8%
2017-18 9,276 8% 1,106,200 1%
2018-19 8,373 -10% 1,035,900 -6%
2019-20 8,422 1% 1,022,900 -1%
2020-21 6,081 -28% 1,027,600 0%
Data source: HM Revenue & Customs
However, the quarter-by-quarter changes shown in Table 2 indicate the effect of increasing
transactions. In 2021 quarter 1, transactions were over 50% higher than the same quarter in 2020 –
and that was just enough to bring receipts back to their level in the previous year. A continuing
healthy housing market -- in terms of both the number of transactions and house price increases --
could therefore mean that receipts would continue to rise, at least in money terms, if the holiday
were to be maintained.
8Table 2: Summary of recent quarter-to-quarter changes (residential transactions and receipts) –
Holiday period shaded
2019 2019 2019 2020 2020 2020 2020 2021
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Residential
transactions: 240,500 278,000 285,300 219,100 133,300 228,800 329,900 335,600
Number
Percentage
-3% 0% 0% -3% -45% -18% 16% 53%
change
Residential
receipts 1,897 2,366 2,322 1,837 1,087 1,352 1,809 1,833
(£million)
Percentage
-4% 1% 0% 7% -43% -43% -22% 0%
change
Data source: HM Revenue & Customs
The impact on house prices
It is generally well understood that stamp duty impacts house prices – and of course that house
prices modify the receipts obtained. Importantly the average house price in England in March 2021,
at £273,000, was almost 10% higher than in March 2020. In the previous year, prices had only risen
by 3%.
A recent report by CEBR which uses government estimates of elasticities suggests that if the holiday
were to be made permanent there would be a roughly 2% increase in housing wealth because of
house price increases (CEBR 2020). More generally, the CEBR report suggests that such an extension
might actually increase overall tax revenues, not just through higher house prices but also through
the knock-on effect of increased housing wealth on consumption.
Price rises have differed very considerable between regions. For the period April 2020 – April 2021,
they rose most rapidly in the North East (almost 17%) and Yorkshire and the Humber (around 12%),
and least in London (3%) and the South East (5%). Southern regions have in general experienced
lower increases than the rest of the country.
These price increases appear to be negatively correlated with the average amount of stamp duty
saved, because house prices are so much lower in the North than the South. Part of the increase in
activity is clearly to do with pandemic-related changes in attitudes to space and locality, and it also
suggests that the holiday may have modified behaviour through acting as a catalyst to make people
get on with moving, rather than directly by reducing the amount purchasers would have to pay. But
it will take a great deal of further research to understand all the contributing factors.
There are thus well evidenced concerns that an extended holiday would tend to increase house
prices and reduce affordability. So the government might well benefit in terms of revenues, but
some of those trying to enter owner-occupation might be disadvantaged. The following section
summarises some relevant academic findings on how stamp duty affects residential mobility,
consumer expenditure and tax revenue.
94 Some direct and indirect effects of stamp duty: evidence from
existing research
The direct effect on residential mobility
The buyer of the property is legally responsible for the payment of stamp duty, but economists
distinguish between the legal responsibility for tax payment and the incidence of the tax.
Although the actual payment falls on the buyer, part of it is effectively ‘paid for’ by the seller as they
receive a lower price than they otherwise would. The question is therefore how the total is
allocated. According to Davidoff and Leigh
From a theoretical perspective, inelastic factors bear the economic burden of taxes.
Therefore, if buyers are more price-inelastic than sellers, then buyers will bear most of
the tax burden and house prices will not change much in response to a change in
house sales taxes…. Regardless of incidence, theory also predicts that higher
taxes…reduce total sales.’ (2013, p.396)
This tax wedge means that buyers pay more than they otherwise would and sellers receive less,
reducing the incentives for both parties to transact.
In addition, stamp duty effectively raises the down payment requirement for buyers, as the tax
cannot be financed with a mortgage but must be paid for out of savings. The dampening effects of
stamp duty reduce transactions and residential mobility (particularly among those with higher-value
homes) and inhibit market mechanisms that would lead to more efficient use of the housing stock.
Extensive work has been done in the UK and elsewhere on the broad principles of good taxation and
specifically on property transfer taxes. The consensus is that transfer taxes are poor taxes because
they are less efficient than other types of property tax because they reduce transactions (Mirrlees et
al, 2011; Henry et al, 2010; Southwood, 2017), meaning that some desirable and welfare-enhancing
reallocations of the housing stock do not take place. The implication is that it would be better to
replace stamp duty by another less distortionary land or property tax proportionate to housing
wealth.
Stamp duty may discourage older owner-occupiers from moving to smaller homes, especially as
these smaller homes may well be no cheaper (Wood et al 2012). This was also recognised by the
House of Lords Economic Affairs Committee (2016) and the House of Commons Housing,
Communities and Local Government Committee (2018).
Making housing transactions more expensive may reduce productivity, as the lock-in effect reduces
the likelihood that home owners will move to better paying jobs (Van Ommeren 2008). Housing
market frictions and inefficiencies can generate labour market rigidities and increase unemployment
(van Ewijk and van Leuvensteijn, 2009; Rupert and Wasmer, 2012; Blanchflower and Oswald, 2013).
Finally, stamp duty appears to deter discretionary moves more than necessary moves (for job
reasons or moving into care) (Hilber & Lyytikäinen 2017; IPC 2016).
Importantly, the economic literature on taxation policy generally compares stamp duty with
alternative, more efficient, taxes. During the stamp duty holiday there have been a number of
policy-oriented papers (eg by Fairer Share [2021] and Gerard Lyons [2021]), which have suggested
replacing stamp duty with alternatives such as a modified council tax or a wealth tax.
10The indirect effect on expenditure associated with home moves
Economists have long been interested in the wealth effects of increasing house prices, which enable
home owners to spend more through the mechanism of equity withdrawal, but there has been less
written on the effect of housing transactions on expenditure.
Littlewood and Munro (1997) analyse the decision process between moving and improving, and find
that it is not a binary choice: in fact, many movers are improvers, as recent movers frequently
undertake a programme of improvements to bring the new dwelling in line with their aspirations.
Some movers ‘intentionally move into the “wrong” housing, with the intention of transforming it
into the “right” housing’ (p 1773). Using 1991 data on the Scottish housing market, the authors
found that about one-third of home buyers had undertaken works costing at least £500 in the year
since moving in (in today’s money about £1000). The categories of work showing the biggest
differences between movers and non-movers were bathroom and kitchen fitting; gas, water and
electrics; and heating. Recent movers were found to be 1.38 times as likely to do major
improvement or repair work on their homes in the last year as non-movers. Those who had done
works tended to have higher incomes and wealth than those who had not, suggesting that it was not
necessarily affordability concerns that caused them to buy homes that needed improvement but
rather a positive choice.
Several studies have shown that moving home is associated with higher levels of expenditure on
both consumer durables and certain services in the year after moving. Benito and Wood (2005)
found that ‘moving home does directly stimulate durables spending’ (p. 157), as home movers (of all
tenures) were two to three times more likely to buy white goods in the year after moving than were
non-movers. In addition, that their total spend on such items tended to be slightly higher than that
of stayers. The paper estimated the potential effect of a UK-wide reduction in housing transactions
of 100,000 and found that it could reduce spending on the durables sectors most affected
(household and audio-visual goods) by 0.9%, equivalent to a fall of 0.2% in overall durable and semi-
durable spending. If the effect were symmetrical, an equivalent rise in housing transactions could be
expected to increase expenditure on durables by the same amount. Benito and Wood said any
transaction-related effects would alter the short-term profile of spending but not the overall
quantum, as they mainly bring forward expenditure that would have happened in any case.
Using US data on home owners in the wake of the GFC, Benmelech et al (2017) found that movers
spent $3700 more than non-movers in the year following their move. Whereas Benito and Wood
said the stimulus merely moved the timing of expenditure, Benmelech et al disagreed: much of this
expenditure would not have taken place without a home move.
“Owing to search frictions, households cannot find homes that match their specific taste and
stock of durable goods. Buyers therefore tailor their newly purchased home to their
preferences by altering the physical structure and by buying new furnishings and appliances.
… These purchases and alterations are at least in part irreversible. Home renovations and
additions, for example, cannot be moved from one place to another. Many fixtures,
appliances and furnishings are also purchased to complement a particular physical space and
so are purchased anew after a move. Given these assumptions, aggregate demand will
expand and contract with the number of transactions during housing cycles” (p.3).
The additional expenditure associated with transactions came not only after a move but also before,
as sellers readied their homes for sale. The authors found that home buyers spent on average $5900
more (in 2009 dollars) in the period from three months before purchase to a year afterwards than
non-purchasers: twice as much on home improvement and maintenance, and three times more on
durables. Spending peaked in the quarter after purchase, falling to more normal levels after the first
11year. Expenditure on non-housing related items fell slightly during the period after house purchase,
but not by enough to offset the increased housing-related expenditure.
The findings of Best and Kleven (2017) are particularly relevant, as they use stamp duty data
covering the 16-month stamp duty holiday in 2008-09, which moved the floor for stamp duty from
£125,000 to £175,000. They found that cuts stimulated additional transactions in the housing
market, and not only brought forward transactions that would have happened in any case, but also
generated additional transactions. Best and Kleven (2017) also estimated that a housing transaction
stimulated expenditure of 5% of the purchase price of the house in the first year and 1% in the
second year, and that for every pound of tax cut, an equal amount of consumer spending resulted—
that is, the tax multiplier was around 1. The biggest categories of expenditure were repairs and
improvements and furnishings. Expenditure on appliances, a major focus of some other articles, was
found to be much less important.
Another study of the effect of the 2008 stamp duty holiday suggested that transactions rose by 8%
during the holiday but this increase was reversed after the policy was withdrawn. It also suggested
that the buyer gained 60% of the benefit, reflecting the fact that the holiday was introduced in the
light of low activity on the housing market (Besley et al, 2014). In the current holiday, given that the
market was already moving by July 2020, the proportion gained by the buyer might well be less.
Research by the CEBR (CEBR, 2020) used government estimates of elasticities etc to look at the
potential fiscal effects of extending the stamp duty holiday in perpetuity. Their analysis suggested
that the initial reduction in revenues could well be offset by additional revenues coming from (i)
more transactions; (ii) higher house prices; (iii) capital gains tax receipts coming from these higher
prices; (iv) the tax on rising consumption generated by the reduced stamp duty burden and (v) tax
revenues from additional consumption generated by higher house prices. However, the range of
estimates is very large, from significant reductions in net revenue to large increases, with the
variation concentrated in the consumption effects. Most importantly a large proportion of these
consumption benefits come from the higher house prices arising from the extended holiday.
125 Effects on the market and consumer behaviour: survey findings
We carried out two online surveys between late May and mid-June 2021. Survey invitations were
sent to 1,328 customers of Family Building Society who had taken out a mortgage during the stamp
duty holiday period (8th July 2020 – 31st March 2021) and to 6,182 mortgage intermediaries across
the country. We received 72 usable answers from Family Building Society customers (5.4% response
rate), and 49 from intermediaries (0.8%). The texts of the survey questionnaires can be found in
Appendix A.
Consumer views: How the holiday affected behaviour
About the respondents
Reflecting the Family Building Society customer base, 53% of respondents were retired and 44%
were working (full time and part time). 67% of respondents were 61 years old and older. 41% had
household annual incomes (before tax) of between £25,000 and £50,000.
About purchasing a property during the stamp duty holiday
Most respondents had purchased a main home during the stamp duty holiday (85%). Only a small
minority had purchased a Buy to Let property (7%) or a second home (4%). The main homes
purchased were mainly in the price range between £200,000 and £500,000, while 30% were more
expensive and only 19% were cheaper. Prices of buy to let properties ranged from below £200,000
to more than £1.5 million whilst all second homes cost less than £925,000.
Table 3: Purchase prices of properties bought during stamp duty holiday N=72
Between Between Between
Less than More than
£200,001 and £500,001 and £925,001 and
£200,000 £1.5 million
£500,000 £925,000 £1.5 million
Main home 19% 51% 23% 6% 1%
Buy to Let 25% 25% 25% 0% 25%
Second home 25% 25% 50% 0% 0%
Source: Survey of Family Building Society customers
A majority of respondents (84%) knew about the stamp duty holiday when they decided to purchase
their property. Most respondents said the holiday was not at all important or only somewhat
important in their decision to buy, although 11 respondents (17% of those replying) said it was the
decisive factor.
Those who said it was not at all important had other personal reasons to purchase a property at that
time. Comments included ‘I needed somewhere to live after divorce after 23 years married’, ‘First
time buyer’ and ‘Extremely necessary to purchase a property. Personal circumstances.’ Most (71%)
had already decided to purchase a property before the stamp duty holiday was announced.
13In principle, the holiday should have led house prices to rise, offsetting some of the tax savings, but
this may not be apparent to individual consumers: more than half (54%) thought that buying during
the stamp duty holiday did not affect the purchase price they paid, although some did express
concern about price effects:
I believe properties were selling at a premium because sellers believe they could achieve
more - accessing the buyers saving. We honestly believe we sold at a fair price but that we
did pay a premium for securing our new home. I know "we would think that wouldn't we",
but we didn't press our purchaser for more than the range of valuations determined.
Market is limited by supply due to finite/limited resource and population growth. Stamp duty
holiday has just increased demand-pull inflation.
Most (58%) had sold a residential property during the holiday. For those who sold a property, most
(71%) said that that completing during the holiday was important for the purchaser. 47% of our
respondents were not sure if the holiday affected the price their purchaser was willing to pay.
Table 4: Whether sellers thought stamp duty holiday affected how much buyers would pay N=15
%
Yes 40%
Don't know/ Not sure 47%
No 13%
Source: Survey of Family Building Society customers
Direct costs associated with moving were relatively modest: the median costs were £5000-£7,500,
with 48% saying they spent £5000 or less (Table 5). Note that this did not include estate agents’ fees
or investment in the property itself, addressed below.
Table 5: Costs associated with moving (conveyancing, solicitor, removal company, etc) N=57
£ %
0-2,500 25%
2,501 - 5,000 23%
5,001-7,500 5%
7,501-10,000 14%
10,001-12,500 4%
12,501-15,000 5%
15,001+ 15%
Source: Survey of Family Building Society customers
1463% of respondents said they had spent or planned to spend money on improvements. The median
amount was in the range of £10,000 to £20,000, with 12% saying they planned to spend more than
£50,000.
Table 6: Expected expenditure on improvements within a year of purchaseN=59
%
0- £1,000 5%
£1,001 - £5,000 22%
£5,001 - £10,000 14%
£10,001 - £20,000 27%
£20,000- £50,000 20%
Over £50,001 12%
Source: Survey of Family Building Society customers
Some said that saving on stamp duty allowed them to pay for more home improvements:
Even though we would have proceeded without the holiday, the money saved has allowed us
to make necessary home improvements sooner than we expected.
Since we moved here, we installed solar panels and heat pumps. We funded all of this on the
difference between what it cost to us to move and what we sold the house for. Certainly
savings on the stamp duty have contributed, covering around half the cost.
Another interviewee said that his son had expected to spend £5,000 to £10,000 but had probably
ended up spending twice as much. Two more who had bought cheaper homes than those they sold
said they had spent a lot of money – one on making their home carbon neutral and one on meeting
listed building requirements.
Reasons for moving
Respondents picked three main reasons (out seven) for moving: family reasons (29%), moving to a
different area (29%) and change in property size (25%). Some 13% said the stamp duty holiday was
among their main reasons for moving.
Table 7: Main reasons for moving (multiple responses permitted) N=72
%
Family reasons 29%
Moving to a different area 29%
Change in property size 25%
First time property purchase 15%
Opportunity with stamp duty holiday 13%
Retiring 10%
Moving for work 6%
Source: Survey of Family Building Society customers
15Several customers had sold their property in the South East in order to purchase a cheaper property
in Northern England.
‘We bought this house for £105k less than we sold our old home. We’ve got roughly the same
square meterage, but it’s a different configuration. It’s only two of us now so we didn’t need
4 bedrooms necessarily, we have a bigger garden, and we are in a rural setting.’
58% of respondents said the holiday had some bearing on the timing of their property purchase,
while 42% said it was not at all important.
Table 8: Importance of stamp duty holiday in timing of property purchase N=65
%
The decisive factor 12%
Very important 15%
Somewhat important 31%
Not at all important 42%
Source: Survey of Family Building Society customers
Characteristics of the new property
There was no clear pattern in terms of moving to a bigger, smaller or similar sized property. In terms
of price, 58% stated that the purchase price of their new home was higher than what their previous
home sold for. The vast majority of our respondents purchased a house (detached or semi-
detached) with a private garden, which is in part a reflection of Family Building Society’s lending
policies.
Table 9: Type of property purchased during the stamp duty holiday N=72
%
Detached house 35%
Semi-detached house 28%
Terraced house 18%
Other (please specify) 11%
Flat in a block that was originally built as flats 7%
Flat in a converted house 1%
Source: Survey of Family Building Society customers
The properties purchased were located across England, with a concentration in London and the
Home Counties (Annex Figure A1).
16Views on the future of stamp duty
Most consumer respondents said the stamp duty holiday should be made permanent, though 23%
said they didn't know. The main reasons given were that it puts money in the economy (in line with
the academic literature about housing transactions and associated spending). Other main reasons
were that it encourages right sizing and mobility (Table 10).
Table 10: Reasons to abolish stamp duty
Respondents who say stamp duty holiday should be made permanent, N=45
%
It puts money in the economy 62%
It encourages mobility 53%
It encourages rightsizing 53%
It simplifies the process of moving 44%
Other 16%
Source: Survey of Family Building Society customers
Stamp duty as a concept for a homeowner is frustrating because you are paying the
government for the privilege to work hard to buy a home, and being in a position to upgrade
it.
A small minority of respondents thought stamp duty should be kept, mainly saying that government
needed the revenue.
As far as the government is concerned, I support stamp duty. If you going to buy a multi-
million-pound property, you should pay stamp duty. But people tend to pay to the maximum
they can afford and there should be a mechanism with staged payments for these people
(perhaps taking a charge over the property).
First-time buyers generally were not directly affected by the stamp duty holiday as most would not
have been liable for the tax in any case, but some said the holiday had increased competition from
investors:
As a first time buyer we would have been priced out if we had had to pay the stamp duty
(which I don’t think we would have been liable for even without the virus). Our housing
choices though are decreased by people already able to purchase additional properties
taking advantage of the suspension and making it again harder to get on the ladder.
Intermediaries’ views: How the holiday affected the market
58% of intermediaries said transactions had gone up a bit during the stamp duty holiday period,
whilst 23% said they had gone up substantially. Only one of this group was in greater London. Those
who saw increases attributed them to the easing of lockdown, the need for a better home for living
and working and the stamp duty holiday. Although most said the stamp duty holiday should be
made permanent, some expressed concerned about the impact that would have on the stability of
the market.
Most intermediaries said the biggest proportion of transactions (between 75 and 100%) was for
properties worth under £500,000. 61% of intermediaries said a quarter of their transactions were for
properties worth between £500,000 and £925,000, and 29% of intermediaries said a quarter of their
transactions were for homes selling for between £925,000 and £1.5 million. Only a very small
17number of respondents (14%) said they handled transactions for properties worth £1.5 million and
more; these generally accounted for less than a quarter of their transactions.
All intermediaries said their customers were aware of the stamp duty holiday, and said some or
most of them saw it as a factor in their decision to buy and/or in the timing of the purchase.
Table 11: Whether stamp duty holiday affected decision to buy and timing of purchase
Proportion of purchasers for whom Decision about whether to buy Timing of purchase
stamp duty holiday affected
None 2% 0%
A few 15% 15%
Some 27% 34%
Most 50% 38%
All 6% 13%
Source: Survey of Family Building Society intermediaries
Most (67%) of the intermediaries’ customers sold a home when they bought one. It was then seen
as very important for the buyer to complete during the holiday period (46%) and this could have
affected the prices they were willing to pay (48% said so).
53% of intermediaries said the stamp duty holiday should be made permanent, saying for example
‘It needs restructuring’ and ‘stamp duty is just theft by the government’, but 22% disagreed. Those
who did not support making the holiday permanent said it could cause market disruption: ‘Anything
that artificially inflates house prices is not good for the market’; ‘It creates short term chaos in the
market’; ‘Its fuelling an unsustainable house price rise’; ‘We cover the whole of the UK – and in
general see the benefits from potential savings with the stamp duty as being offset by the fact that
my clients are paying over the true market value of the property’.
Echoing the comments of some consumers, on intermediary said the stamp duty holiday negatively
affected first-time buyers: ‘It does benefit BTL portfolio holders as they are in better position to
profit from this. Resulting price increase only makes it harder for the first-time buyers.’
Intermediaries reported that combined with the changes in working arrangements occasioned by
the pandemic, the holiday had put severe pressure on the conveyancing system—and said they were
often blamed for resulting delays.
‘The holiday came completely at the wrong time: lenders’ staff were all on furlough and
unable to process the applications fast enough. In 2019, if I put in a mortgage application on
a Monday I often had an offer by the Friday; the average time to process was 10-14 days.
Since the holiday it’s been at least four weeks. And conveyancing would usually take 12
weeks and now it’s almost four months. Some of the major lenders still only have 1/3 to ½ of
their staff working, and I can be on hold for 45 or 50 minutes waiting to speak to someone.
Local searches took 10-14 days before, more like 21 now.’
‘With the original deadline it was fine, but with the extension there was an influx of people
definitely moving. They had a 3-month window to move out. In these cases, it’s not only
them, it’s a chain of people that needs to move. Sudden pressure of having high value cases
coming at the same time, same date, same amount of money saved. Many couldn’t find
solicitors, because they were refusing to take more business.’
186 Conclusions
What happened?
The stamp duty holiday introduced in July 2020 and extended to the end of June 2021 was aimed at
increasing activity in the housing market and helping the wider economy by increasing demand for
goods and services associated with moving. These goals are stated in the Treasury press release of
October 2020 (HM Treasury, 2020). It was expected to work in three main ways: by directly reducing
purchase costs for almost everyone buying during the holiday period (first-time buyers buying
property for £300,000 or less were already exempt); by limiting the holiday so that people would
move their plans forward to gain the benefits; and by freeing up funds for buyers to spend on
improvements, furnishings white goods etc.
The housing market had started to pick up as soon as pandemic restrictions permitted people to
move, so by the time the stamp duty holiday was announced it seemed already relatively healthy.
From September 2020 there was clearer evidence that the holiday might be helping to increase
transactions as these went above 2019 levels by about 10,000 per month. In February and March
2021, which were expected to be the final months of the holiday, transactions were very significantly
above 2019 levels – to the point that the financial year ending March 2021 saw more transactions
than the previous year.
Why did activity increase?
The evidence suggests that there were three main reasons why people decided to move:
• The easing of lockdown, which had delayed many purchases and moves;
• Changing property requirements--significantly because of the pandemic--with people
wanting to move away from cities and purchase more space, including access to outside
space both private and public, and
• The stamp duty holiday, which both made it easier to move and changed people’s attitudes
to moving.
In addition, people who were reasonably well off were often saving large amounts of cash which
helped them to buy not just a different main home but also perhaps a more expensive one. It also
incentivised the purchase of buy-to-let or second homes.
The impact of the holiday
It would require more detailed analysis to distinguish between the impact of the stamp duty holiday
and the other factors affecting the demand to move. A starting point might be to estimate the
number of additional transactions associated with the holiday, as compared to 2019/20 (the most
recent normal year). The holiday was announced in July, and the additional transactions start to
become apparent in September 2020. From then until January 2021 the maximum difference seems
to have been around 10,000 per month for a total of 40,000 ‘extra’ transactions. The final few
months of the initial holiday period, as people rushed to complete, arguably included around
100,000 additional transactions associated with the stamp duty holiday. The total annual difference
associated with the holiday is thus about 140,000 units. It should however be recognised that many
of these were delayed transactions and it is as yet unclear how many were purchases brought
forward to benefit from the holiday.
The additional transactions will have generated increased expenditure by sellers on pre-sales
cosmetic improvements; on the process of moving; and post-move on improving and furnishing the
new home. Surveyed customers said they spent on average £6,000 on moving expenses (solicitors’
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